Financial planning · Gratuity guide
Last verified 26 June 2026 · Information, not regulated financial advice
For UAE unlimited contracts, gratuity is calculated on basic salary only, not allowances. For 1 to 3 years of service you receive 21 days of basic salary per year. From 3 to 5 years it rises to 30 days per year, and above 5 years you receive 30 days per year for all service.
"How do I calculate my UAE gratuity if I am on an unlimited contract and resign?" is one of the most common financial questions among private-sector workers approaching a job change, a career break or a return home. The answer requires working through three things in order: what salary figure the calculation uses, which rate band applies to your years of service, and whether your circumstances (resignation versus termination) change the result under the rules that govern your contract.
This guide covers the UAE gratuity formula for unlimited contracts specifically, with worked examples at 3 years and 7 years of service. It does not replace professional legal advice for contested situations. The governing legislation is UAE Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, which came into effect in February 2022 and updated the earlier framework. For queries about how the law applies to your specific situation, the UAE Ministry of Human Resources and Emiratisation (MOHRE) operates a Tawafuq system for complaints and enquiries.
The UAE gratuity calculation uses basic salary only, which is the single most important thing to understand before working through the formula. The basic salary is the contractual base pay stated in your employment contract, stripped of every allowance and benefit. Housing allowance, transport allowance, food allowance, phone allowance, school fees allowance and any other cash or in-kind benefits are all excluded. Overtime pay, commission and annual bonuses are also excluded regardless of how regularly or reliably they were paid.
In the UAE private sector, it is common for basic salary to represent a relatively small portion of total remuneration. A package of AED 20,000 per month might carry a basic salary of AED 8,000 with the remainder spread across allowances. The gratuity calculation runs on the AED 8,000, not the AED 20,000. For many employees, this produces a gratuity figure significantly lower than what a naive calculation on total pay would suggest.
The relevant basic salary figure is the one in force on the last day of employment, not an average over the contract period or the salary at joining. If your basic salary increased during your employment, the final (higher) figure is used for the entire gratuity calculation, which works in the employee's favour when salaries have risen over time.
Check your contract to see how it defines basic salary. Where a contract expresses total remuneration as a single figure without separating basic salary from allowances, disputes can arise over what proportion constitutes basic pay. The MOHRE guidance and UAE courts have generally taken the view that if a contract does not separately identify allowances, the entire amount may be treated as basic salary for gratuity purposes, depending on the circumstances. This is an area where employment lawyers are sometimes called in when the employer and employee disagree.
For UAE unlimited contracts, the gratuity entitlement builds in bands based on completed years of service:
| Service length | Gratuity rate | Applies to |
|---|---|---|
| Less than 1 year | None | Not entitled |
| 1 year to 3 years | 21 days per year | All completed years |
| 3 years to 5 years | 30 days per year | All completed years |
| Above 5 years | 30 days per year | All service years |
Overall cap: total gratuity cannot exceed 2 years of basic salary. Partial years are calculated pro-rata.
To convert the daily rate into money, divide your monthly basic salary by 30 to get a daily rate (UAE Labour Law uses 30 days per month for this calculation, regardless of the actual days in each month). Then multiply the daily rate by the number of days the formula gives you for your service length.
Partial years of service count on a pro-rata basis. If you worked for 3 years and 7 months, the 7 months beyond the third anniversary accrue at 30 days per year (the rate for the 3-5 year band), calculated proportionally for 7 twelfths of a year.
Under the framework in force before UAE Federal Decree-Law No. 33 of 2021, employees on unlimited contracts who resigned received reduced gratuity depending on their service length: a third of the entitlement for 1 to 3 years, two thirds for 3 to 5 years, and full entitlement after 5 years. Termination by the employer triggered the full entitlement at any service length above 1 year.
The 2021 law changed this. What is the difference between UAE gratuity for unlimited and limited contracts under the new framework? Under Federal Decree-Law No. 33 of 2021, which took effect in February 2022, the reduction that previously applied to employees who resigned from unlimited contracts was removed in many cases. The law's intent was to bring the treatment of resignation and termination closer together, reflecting that an employee who completes their notice period has fulfilled their contractual obligations.
However, the 2021 law also converted most unlimited contracts to fixed-term contracts, with a transition period. If your contract predates 2022 and has not been updated since the new law came into force, your situation may be governed by transitional provisions. MOHRE guidance recommends that employees and employers confirm which rules apply to their specific contract, particularly where the employment predates February 2022. This is the one area of UAE gratuity where the advice "check with MOHRE or an employment lawyer before assuming" is not overcautious.
For employees whose contracts were updated after February 2022 or who joined after that date, the cleaner position is that resignation with proper notice entitles you to the full gratuity calculated under the formula above. Dismissal for gross misconduct or disciplinary reasons can affect entitlement; if you were dismissed for a reason the employer cites under Article 44 of the 2021 law, seek separate legal advice.
These examples use a basic salary of AED 10,000 per month, which gives a daily rate of AED 333.33 (10,000 ÷ 30). All figures represent the calculation under the unlimited contract formula; always verify your specific position with MOHRE if there is any dispute.
Example A: 3 years of service, basic salary AED 10,000/month
Daily rate: AED 10,000 ÷ 30 = AED 333.33
Service in the 1-3 year band: 3 years at 21 days per year = 63 days total
Gratuity: 63 × AED 333.33 = AED 21,000
Note: a 4th year at 30 days per year would add AED 10,000 to this total. The jump from 3 to 4 years of service increases the gratuity by more than the year-3 increment alone, because completing year 4 moves the entire accumulated service into the 30-day band.
Example B: 7 years of service, basic salary AED 10,000/month
Daily rate: AED 10,000 ÷ 30 = AED 333.33
7 years of service: all at 30 days per year (the rate above 3 years) = 210 days total
Gratuity: 210 × AED 333.33 = AED 70,000
Cap check: 2 years of basic salary = 24 months × AED 10,000 = AED 240,000. The cap is not reached at 7 years on this salary. The cap typically bites for employees with very long tenures at lower salary points, or for extremely long service at any salary level.
One aspect that surprises many workers: the formula says "above 5 years at 30 days per year for all service", which means all 7 years in Example B attract the 30-day rate. This is because once you cross the 3-year threshold on an unlimited contract, the higher 30-day rate applies to the total years, not just the incremental years above 3. The distinction matters most at exactly the 3-year mark, where tipping into year 4 is financially meaningful.
The Wages Protection System (WPS) governs regular salary payments in the UAE private sector, requiring employers to pay salaries through approved bank or exchange-house channels so MOHRE can verify compliance. Gratuity is not a regular salary payment and does not flow through the WPS cycle in the same way. It is a lump-sum end-of-service payment.
Under UAE Labour Law, gratuity is due at the end of the employment relationship. There is no specific number of days prescribed in the law for when it must be paid after the last day of work, but the practice and MOHRE guidance is that it should be included in the final settlement, which employers are generally expected to process promptly after the last working day. Delays beyond a few weeks after the end of employment can give rise to a legitimate MOHRE complaint.
If your gratuity has not been paid and the notice period has ended, the MOHRE Tawafuq system is the first step. File a complaint online at mohre.gov.ae or through the MOHRE app. The system triggers a conciliation process between employer and employee; if conciliation fails, the case is referred to the Labour Court. The UAE courts have a reasonably consistent record of enforcing gratuity claims where the service length and salary are not in dispute.
Thinking about what to do with a gratuity lump sum when it arrives? The savings and current account comparison shows published rates from UAE banks. Fixed deposits typically offer better returns than instant-access savings for amounts you can set aside for 3 to 12 months, and the UAE gratuity calculation rules guide covers general principles and the two-year cap in detail.
Sources: UAE Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (mohre.gov.ae); UAE Ministry of Human Resources and Emiratisation guidance. Worked examples use rounded figures for illustration. This article is comparison and information, not regulated employment or legal advice. For contested gratuity situations, consult an employment lawyer or the MOHRE Tawafuq system. Last verified 26 June 2026.
Gratuity on an unlimited contract is calculated on your last basic salary, excluding allowances. The rate is 21 days of basic salary per year for 1 to 3 years of service, and 30 days per year for service between 3 and 5 years and above 5 years. Divide your monthly basic by 30 to get a daily rate, multiply by the applicable days and your years. Service under 1 year entitles you to nothing. Total gratuity is capped at 2 years of basic salary.
UAE Federal Decree-Law No. 33 of 2021 restructured the treatment of limited and unlimited contracts and brought the gratuity entitlement for resignation cases closer to parity. Under the old framework, resignation from an unlimited contract triggered reduced gratuity depending on service length. The 2021 law removed these reductions in many cases and also converted most unlimited contracts to fixed-term contracts. If your contract predates February 2022, confirm which rules apply with MOHRE.
UAE gratuity is calculated on basic salary only. Housing, transport, food and all other allowances are excluded. The basic salary is the contractual base pay stated in your employment contract as at your last day of employment. Because allowances often form a large share of UAE private-sector packages, the gratuity amount can be significantly lower than a calculation on total remuneration would suggest.
Basic salary is the contractual base pay, excluding all allowances, bonuses, commissions, overtime and benefits in kind. Where a contract clearly separates basic from allowances, the gratuity calculation uses the stated basic figure. Where the contract combines everything into one total, disputes can arise; MOHRE guidance and UAE courts have taken the view that ambiguous total-package contracts may result in the whole amount being treated as basic salary.
Gratuity is a lump-sum end-of-service payment, not part of the Wages Protection System monthly cycle. It is due at the end of employment and should be included in the final settlement. MOHRE guidance is that it should be paid promptly after the last working day. Delays can be challenged through MOHRE's Tawafuq system, which initiates a conciliation process between employer and employee.
Yes. Total UAE gratuity cannot exceed 2 years of basic salary regardless of service length. The cap becomes binding for very long-serving employees: once the formula calculation reaches 24 months of basic pay, the amount is capped there. For a worker on AED 10,000 per month basic salary, the cap is AED 240,000, which at 30 days per year would be reached at around 24 years of service.
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